RadNet Inc. Financing an Acquisition Harvard Case Solution & Analysis

RadNet Inc. Financing an Acquisition Case Solution

RadNet Inc. Financing an Acquisition Case Solution

Problem Statement

With the extreme benefits of earning a reputable name in the diagnostic image provider market of United States, there are also some associated cost with this acquisition, which are related to the choice of optimal financing mix in order to finance the overall deal. It can be seen that due to the huge size of the debt requirement, it could not be fulfilled in the first tranche rather in the 2nd tranche. The choice of HY debt or SLD is also a problem, which would be discussed in detail in this report.

Advantages and Disadvantages associated with this Acquisition

There are numerous benefits for RadNet Inc. from this acquisition. The main benefit for the company is associated with the global reach of the company, which could generate enough revenues for the combined company. It can be seen that Radiologix Inc. has significant number of centers, most of which are located in California, Maryland as well as in New York, which provides the medical services to the patients. With the help of this acquisition, RadNet Inc. could go beyond its boundary and through cross-selling could achieve significant increment in its overall revenues. In addition to this, it can be seen that the two businesses are complementary to each other; this could overall increase the compatibility of their business model, could further solidify the competitiveness of the business, and makes the acquisition effective.

Since the combined company would be huge enough to give the competitive threat in the industry, there would also be significant cost advantages in relation to cutting the overall cost of operations. Since before the acquisition, significant issues were prevalent for Radio logix Inc. in managing its cost efficiently whereas on the other hand, RadNet Inc. has all the capabilities to resolve the problems. The consolidated financial results will improve significantly, as synergies in the combined operations will be achieved. As per the case, the exhibit 6 shows that the total of $11 million can be saved from the combined operations. In addition to this, with the changes in the policies of the government reimbursement benefits, the stock prices, as well as the revenues of the company fall sharply which with the help of this acquisition could be compensated significantly and the overall transmission effect will be effect of reimbursement cut. Last, but not the least, is the increased capacity of the company with the help of this acquisition could provide significant benefits in the capital market. The overall credit rating of the combined company would be increased, which could help in raising loans or debt from the capital markets very easily.

With significant benefits for the combined company, there are some weaknesses attached in this overall acquisition, which could however be managed easily after consolidation. The first and the foremost weakness is the risk of loss of skilled staff in this overall process. Under the new leadership, the skilled staff might leave the company, which could affect the performance of the company. In addition to this, it can be seen that Radiologix Inc. has inefficient operations, which could result in increased cost and simultaneously decreased operating margins. This issue could however be solved using the expertise of RadNet, which could eliminate such inefficiencies, but the overall solution could require time and the results could also be uncertain. Last, but not the least, the inappropriate use of capital expenditure by Radiologix Inc., which could result in losses.

SLD or HY Debt

In order to finance the overall deal for this acquisition, the company would require $363.0 million, which is quite a significant size to be acquired, using only the senior debt because of certain limitations. The company thus would be required debt from the second tranche as well, which the matter of discussion was also in this case. There are two significant suggestions underlying in the case, which includes the choice of SLD or HY debt. The qualitative analysis in order to understand their differences, are as follows:........................

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